Despite a generally quiet back-to-school (BTS) shopping season this year, Morgan Stanley’s analysis suggests that some apparel retailers might exceed expectations as the year continues. While overall BTS spending is expected to follow pre-COVID trends, it is likely to fall short of last year’s levels due to recent weaknesses in demand, according to analyst Alex Straton. She predicts that softline retail, which includes clothing and other soft goods, might see a boost later in the season. However, hardline categories, such as appliances and furniture, are expected to continue facing challenges. This cautious outlook reflects a shift in consumer focus towards value, which is affecting enthusiasm for higher-priced items.
Abercrombie & Fitch and Lululemon Athletica are noted as potential winners for this BTS season. Abercrombie, which aligns well with current fashion trends like stripes and cargo styles, has experienced a remarkable 87% increase in its share price this year. Despite this impressive performance, the company might see a 2.9% decline in sales compared to last year, according to recent surveys. Analysts advise caution because, despite Abercrombie’s strong performance, high expectations and the company’s relatively high valuation compared to its earnings might pose risks.
In contrast, Lululemon Athletica appears well-positioned to benefit from strong BTS spending trends, especially in areas like neutrals, tennis, and ballet apparel. Although the company faces challenges due to its premium pricing, significant year-over-year increases in spending are expected. Analysts believe that Lululemon’s strong position for the second half of the year, combined with potential innovations and improvements in inventory, could enhance its performance despite current weaker data. The stock’s favorable risk-reward profile suggests significant potential for growth if Lululemon can effectively capitalize on upcoming market opportunities.
On the other hand, Kohl’s and Torrid Holdings are expected to fall behind. Kohl’s is struggling to attract younger consumers, which is impacting its performance. Meanwhile, Torrid is facing competitive pressures that contribute to its less favorable outlook.
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